Surety Bond Types And Styles
Surety bonds are things that are purchased to protect third-parties if they were to fail to meet obligations in the contracts. There are four main types of bonds that are the most common. They include contract, commercial, fidelity, and court surety bonds. While some are required by lay in larger commercial projects or within government projects, others are required just be the project owner. Here are the most common types of surety bonds and why they are important.
Contract Surety Bond
This type of bond ensures that a construction company will meet its contract obligations. It’s a good idea for general contractors, subcontractors, and construction companies to hold this type of bond. For commercial and federal projects, this type of bond is often a requirement for the process to move forward.
Commercial Surety Bond
This bond ensures that companies with the right licensing will comply with the codes that are required within the project. Companies that have to have a specific license will also have to have this type of surety bond. You can expect any licensed professional company to carry this bond as part of the licensing process.
Fidelity Surety Bond
This type of bond protects companies as well as their customers from employee theft. Companies that have employees who handle a lot of assets and/or cash may want to consider this type of bond. While it’s not usually required, it can be a good idea for certain situations.
Court Surety Bond
This bond gives protection from loss if there is a case brought up in a court proceeding. Companies who can be involved in lawsuits or individuals with fiduciary duties find this bond a good idea. It’s required for plaintiffs, but not for defendants.
Surety Bond Commonalities
These surety bonds have a lot of things in common. They usually have a cap, for example, that would be between 10 and 15 times the value of the business’s equity. They also usually require that the company have 10% of the total amount bonded in working capital. There is not a hard and fast cap on surety bonds, but businesses will probably have a maximum capacity for the bond they want to get.
The premiums charges are generally anywhere from 1-5% of the amount covered, depending on the credit score of the business owner and the performance within the business. The bonds are usually good from anywhere between 1 and 4 years and they can be renewed after that. Some continue until they are cancelled with no designated expiration in sight. There are also plenty of differences between the bonds, such as the contractual items that are bonded, the cost, the length of time, and the requirement within the bond.
Understanding Surety Bond Details
If you think your business might need a surety bond, it is best to talk to professionals to get everything lined up just right. Contact Nickerson Insurance Agency for details. Once you tell us about your business needs, we can set you up with just the right surety bond.